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This Breakout-Ready Software Leader Boasts Accelerating EPS Estimates

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Accelerating earnings growth is one of the top traits exhibited by leading stocks before a breakout, according to CAN SLIM trading methodology .

[ibd-display-video id=3070966 width=50 float=left autostart=true] Of IBD's 15 current Sector Leader stocks, analysts expect only one to post accelerating EPS growth in its December quarter report. That stock just happens to be near a potential buy point: Software developer Atlassian ( TEAM ).

That is not to say other Sector Leaders won't post accelerating growth. Facebook ( FB ) and Thor Industries ( THO ) are just two in the group for whom earnings even slightly above consensus projections could amount to accelerating growth.

But an earnings beat for Atlassian would be pure gravy. The consensus view for Atlassian's fiscal second-quarter earnings is an increase of 33%, to 12 cents, vs. 9 cents a year ago.

That would produce its biggest earnings percentage gain since Q1 of 2016.

A large part of the boost comes from the January acquisition of Trello for $425 million. That was the company's 19 th acquisition in 15 years, and its largest to date. Cowen & Co. projects fiscal second-quarter revenue at $261.1 million, a 28% increase over adjusted numbers in the same quarter last year

Significantly, Cowen estimates the company will dedicate almost 33% of that total to research and development . That kind of spending is key to gaining market share and remaining more innovative than competitors.

Incorporated in the U.K. and headquartered in Sydney, Atlassian is a leader in the market for software used within company networks to help teams communicate and operate more creatively and cohesively. Its Hipchat communications program and Confluence collaboration tools are widely recognized brands, competing with rival products from the likes of Microsoft ( MSFT ) and Salesforce.com ( CRM ). Its Jira products lead the market among software developer teams.

Trello's highly successful software is a move by Atlassian to get beyond the traditional focus of developers and into new corporate departments.

Cowen names Atlassian the industry's "high-value price leader" and, despite a recent set of price increases, says Atlassian's pricing is, "on average roughly 40% to 80% lower than the competition," according to a Dec. 5 note.

Atlassian also wrapped up a five-month search for a chief financial officer to replace outgoing CFO Murray Demo. The company announced Dec. 18 that James Beer will take over financial duties at Atlassian in February. Since 2013, Beer has been the CFO at drug distributor McKesson (MKC), a company that generated $198.5 billion in fiscal 2017 revenue.

Looking specifically at the stock chart, Atlassian's last breakout came on Oct. 9, about two weeks before its fiscal first quarter report. Shares soared 25% Oct. 20 as the company torched analysts' earnings and revenue estimates for the quarter, and rose for the first time above the 100,000-customer mark.

The gain obliterated a first-stage buy point at 39.35. Its current base, started in mid-November, dipped 19%, but remained well above that prior buy point . The new base's buy point is at 53.55. Atlassian has not yet announced a date for its fiscal second-quarter report.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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